German Watchdogs Warn US on Go-it-Alone Bank Rules

Germany's financial watchdogs warned that plans by the United States to introduce its own rules relating to foreign banks could undermine a global consensus to improve security in the wake of the financial crisis.

Market regulator Bafin said it was in talks with U.S. regulators about their plan to tighten oversight of foreign banks by asking them to hold more capital against the risk of a financial market downturn.

The move by the United States would be "a step in the wrong direction," Bafin President Elke Koenig told the regulator's annual news conference in Bonn.

International regulators agreed to introduce stricter bank safety rules by the end of 2018 that would insist banks build up capital and liquidity in order to be able to absorb potential losses in a crisis.

But countries have found it difficult to agree on introducing precisely the same rules, leading to concerns that new regulation will be fragmented and thus less effective.

Bundesbank Vice President Sabine Lautenschlaeger said on Tuesday unilateral action by U.S. regulators would make managing big banks more difficult and also make it harder to wind down globally active banks that run into trouble.

"National special rules don't fit in a world of internationally active banks," she told a separate conference organised by the Bundesbank.

European bankers have been lobbying the Federal Reserve, and Fed board member Daniel Tarullo in particular, to try to beat back proposed new rules that would force foreign banks to lump all their U.S. subsidiaries under a single holding company.

The Fed said when it proposed the new rules in December that the goal was to crack down on risks to U.S. markets posed by big banks that do business globally.

Speaking at a separate banking conference in Frankfurt on Tuesday, Anshu Jain, co-chief executive of Germany's biggest lender Deutsche Bank, said, in relation to the U.S. proposals: "My biggest worry is a Balkanization of regulation."

His words were echoed by Commerzbank Chief Executive Martin Blessing, who told the Bundesbank conference that he was seeing an increasing tendency toward regulatory fragmentation that particularly affected cross-border banks.

LEVERAGE RATIO

The Bundesbank's Lautenschlaeger also warned against rewording global agreements on how banks extend their debt.

UK and US policymakers have said the 3 percent leverage ratio being brought in under new banking rules called Basel III is too weak to rein in overly large and risky balance sheets. A 3 percent ratio means a bank's leverage should be no more than 33 times assets.

But focusing on the ratio is a mistake since it involves vastly different accounting rules in different countries and is of limited help to regulators seeking to compare banks, Lautenschlaeger said, adding: "An apparently simple rule is being glorified as a panacea for banking supervision problems."

Separately, the German regulators said that country's banks had made progress in raising their own capital levels.

Bafin calculated that major lenders in Europe's largest economy still needed an extra 14 billion euros ($18.1 billion) in capital to fulfil stricter bank safety rules.

But thanks to capital increases and the sale of risky assets, German lenders have reduced their capital shortfall from 32 billion euros and now have regulatory core capital of between 10 percent and 18 percent of risk-weighted assets.

Banks need to have a core tier one capital ratio of 7 percent by 2019. The Basel III rules are being phased in over six years from January 2013.

Lautenschlaeger said she backed the establishment of a European bank resolution authority to wind down wayward banks but said the move would require a change in the EU Treaty.

"It does not make long-term sense to supervise banks at a European level but wind them down under national rules," she said.

Germany's financial watchdogs warned that plans by the United States to introduce its own rules relating to foreign banks could undermine a global consensus to improve security in the wake of the financial crisis.